Uganda once had a vibrant private sector driven edible oil industry.

The economic turmoil of the 1970s and 80s however brought the sub-sector to its knees. With the right macro-economic policies now in place, the sub-sector has made a huge turn around and it is no longer an eyesore. The edible oil industry is now one of the leading sustainers of the positive annual economic growth rates Uganda has enjoyed for over a decade now. Uganda s demand for vegetable cooking oil has been growing at a rate of 3% per annum. The national demand for edible oil is projected to reach over 80,000 MT in 2005 up from 58,292 in 2001. National production as of 2001 stood at 22,151 MT making Uganda a net importer of edible oil to the tune of over 26,000 MT. This gives investment opportunities into the edible oil industry. More importantly, Uganda s central location in the East and Central Africa region makes her a good springboard to the COMESA market with a population estimated at over 370 million people. Trained, trainable as well as unskilled labour is readily available for prospective investors in the sector to utilize. Developments in the industry

Government policy overview All agricultural activities in the country will be guided under the Plan for the Modernization of Agriculture (PMA). The PMA is part of the Government of Uganda s broader strategy of poverty eradication contained in the Poverty Eradication Action Plan (PEAP). Strategically the PMA objectives include: Deepening decentralization

Reduction in public sector activities in favour of the private sector

Adoption of productivity enhancing technologies

Enhanced stakeholder participation in the planning and implementation of programmes.

The overall government policy framework in the agricultural sector therefore continues to emphasise private sector participation and investments. This emphasis is highlighted in a comprehensive strategy to deal with major constraints to private sector development called the Medium-Term Competitive Strategy (MTCS) for the private sector (2000-2005). The private sector, donors and Government agreed upon the contents of the MTCS during the meeting of the consultative group for Uganda in March 2000. Specifically, in the edible oil industry:

the sub-sector has been fully liberalised to create competition in production, processing and marketing, the taxation system is being harmonised so that oil millers operate on a level playing field, and institutions that promote raw material production have been set up and are adequately financed. Trends in the edible oil sector Raw material production Production of raw material in the edible oil industry has shown an upward trend since 1997. By 2001, importation of raw material had dropped to 60 65% from a level of 95% in 1995. In 2001, 160,000 MT of locally available oilseeds were crushed and this scenario is projected to grow positively. Today, the number of farm families involved in oilseeds growing has been expanding since 1997 from a small figure of 14,262 farm families to over 75,000 by end of 2001. This trend has reduced the reliance on imports to meet the national edible vegetable oil requirement as given in figure 1. Institutional support to raw material production A number of institutions have been created to boost production of raw materials for crushing: The National Agricultural Research Organisation (NARO) spearheads research in the production and dissemination of improved varieties for vegetable oil processing. The IFAD funded Vegetable Oil Development Project (VODP) of the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) is spearheading the development of the vegetable oil industry in Uganda. The Cotton Development Organisation (CDO) was set up to revive the cotton industry. Already modest progress has been recorded in the supply of crushable cottonseed. The Uganda Oil Seed Processors Association (UOSPA), a private sector organisation, is very instrumental in co-ordinating the rehabilitation and development of edible oil sub-sector. UOSPA has established a sustainable seed multiplication and distribution system in the country. Appropriate Technology (Uganda) [ AT (Uganda) ] , a branch of Appropriate Technology International (ATI), a US-based NGO is promoting the growing and small-scale (ram press) processing of sunflower (Sunfola variety) in its operational areas of northern and northeastern Uganda. Major raw materials for vegetable oil production in Uganda The majority of the raw materials for the production of edible oil are sunflower and cottonseed, followed by soybean and oil palm. Sunflower

: Sunflower is presently the main material for edible vegetable oil processing in Uganda. It is mainly grown in the drier northern and northeastern districts of Uganda. Research has been done to improve yield, oil content and ease of processing. The dominant variety (Sunfola) is high yielding (about 2500 kg/ha), has a greater oil content (25 40%) and is easy to crush because of its thin seed coat. It is projected that about 40,000 MT of sunfola will be crushed by end of 2003 with an oil yield of 8,500 MT. Figure 2 shows the supply of crushable sunflower and soybean to the oil mills in Uganda for the period 1997-2001. Currently, sunflower is very important for sustaining the oil processing industry when you compare it to soybean. Cottonseed Until the early 1970s, cottonseed was the main raw material for edible vegetable oil processing. The economic mismanagement of the 70s and 80s led to the collapse of the cotton industry and hence domestic oil supply. However, since the launching of the IFAD/IDA funded Cotton Sub-sector Development Project in 1994, cottonseed output has picked up although now the output levels have been stagnating due the erratic performance of cotton in the world market. Figure 3 depicts cottonseeds available for crushing between 1997/98 and 2002/03. Sub-sector Development Project in 1994, cottonseed output has picked up although now the output levels have been stagnating due the erratic performance of cotton in the world market. Figure 3 depicts cottonseeds available for crushing between 1997/98 and 2002/03. The high yielding and non-shattering Nam I and Nam II are the popular varieties grown. Soybean s high protein content of up to 40% makes its cake very popular for livestock feed.

Soybean production is estimated to be growing at over 30% p.a. Table 2 shows the high potential of soybean in the oil industry, although presently less than 30% of what is produced is crushed for oil due to lack of adaptable and affordable technology for crushing soybeans.

National milling capacity

Presently, the national milling capacity is estimated to be 1000 MT per day of which 409 MT is exported. The major players can be categorised into;

Large-scale processors with a capacity of more than 50 MT/day,

Medium-scale processors with a capacity of 10 50 MT/day,

Small-scale/cottage (including ram presses) operators with capacities of less than 10 MT/day. Largescale and medium-scale operators are the core of vegetable oil processing in Uganda. There are presently 38 operational large- and small-scale oil mills in the country. They are generally well-managed commercial operations. The large-scale processors have sophisticated refining, downstream manufacturing and packaging facilities. Medium-scale mills follow a similar design of 4 or 5 low-capacity expellers, a decorticator, a low-pressure boiler, a crude oil neutralising vessel and a small soap plant. The capacity of existing facilities in Uganda is shown in Table 3. Table 3. Existing oil milling capacity in Uganda Mill size Potential capacity (tonnes/day) Practical throughput (tonnes/day) Small (0 0.1 MT) 40.8 20.4 Medium (0.2 10 MT) 190.2 63.8 Large/industrial (11 50 MT) 229.0 110.0 Extra large (> 50 MT) 540.0 215.0 Total 1,000.0

409,122 Source: Otim-Odoch and Singh, 2000.

Potential and actual products of edible oil processing Cooking oil This is the major product and all processors produce vegetable cooking oil for frying. The large-scale processors have their product refined. One large-scale operator is estimated to control 70 80 per cent of the country s refined edible oil market. Vegetable cooking fat A negligible quantity of vegetable cooking fat is produced locally. The demand for vegetable cooking fat is met through importation, mainly from the neighbouring Kenya. Margarine and shortenings There is only one investor producing margarine in the country while there is no local production of shortenings such as baking fat. Uganda s demand is currently met by imports mainly from neighbouring Kenya. However, one of the local industries is considering venturing into shortenings. Cake and soap stock These are natural by-products of edible oil processing. These are usually sold to animal feed and soap manufacturers. There are presently five soap manufacturers and about 50 feed mills in the country that consume these by-products. With the increasing export of soap and demand for feeds, these byproducts will continue to have a ready market. Biodiesel Research has been going on, especially in Europe and America, on the development of renewable and environmentally friendly fuel from oilseeds. Vegetable oil fuels (biodiesel) require less refining than edible vegetable oil. Uganda produces a variety of oilseed crops and plants that can be refined into biodiesel. Uganda s favourable climate is suitable for the production of large quantities of raw material needed for the production of these vegetable fuels. Investment opportunities Considerable opportunities exist in the edible oil sector of the Ugandan economy. The edible oil sector has shown steady growth since 1997 as figure 6 illustrates. The index of industrial production has been positive and this trend is expected to continue over the foreseeable future. Production of edible oil and fat

Large-scale commercial production of refined vegetable oil and fat is a possible investment. National demand for vegetable oil exceeds local production, making Uganda a net importer of edible oil and fat. Currently, national demand stands at about 60,000MT and about 65% of this is met by imports. There is a big export potential for edible vegetable oil and fat for the EAC and COMESA markets. Out right purchase of existing mills or joint venture arrangement with the owners are possible investments in this area. By Ugandan standards, a large-scale oil processing facility is estimated to require a minimum of USD 350,000 450,000 on equipment and accessories. Margarine and shortenings

The baking and confectionery and foodservice industries are growing. Currently, all the baking fats used by the baking and confectionery industry are being imported from neighbouring Kenya. New investments or purchase of existing oil mills or joint venture arrangements are possibilities in this line. Investors can also enter into contractual arrangements with the small- and medium-scale oil mill operators to supply crude oil for further processing. Cotton ginning and cottonseed crushing

Cotton ginning and cottonseed crushing are inter-related activities. In the edible oil industry, cotton ginning is a horizontal integration venture. Cotton exports have been on the increase since the inauguration of the Cotton Sub-sector Development Project in 1994. In financial year 2000/01, cotton exports more than doubled to USD 27.4 million up from USD 12.8 million in financial year 1994/5. Outright purchase of old cotton ginneries or joint venture with existing owners or co-operatives is a big possibility since most of these facilities are run at below their installed capacities. Large scale cotton growing is also a viable opportunities to supply the below capacity run ginneries. With increased production, a lot of cottonseeds will be available for crushing. Animal feeds and soap

Edible vegetable oil processing gives by-products that can be used in animal feeds and soap manufacture. The demand for soap and animal feeds has shown an upward trend since 1997 as indicated in Table 4. Table 4. Soap and animal feed production for the period 1997 2001 (MT) Year Soap

Animal feeds 1997 62,002 25,443 1998 72,827 17,164 1999 83,776 17,474 2000 75,204 31,887 2001 90,807 13,106 Raw material production

Local production of raw materials is below the crushing demand of the edible oil processors. It is estimated that 60 65% of the material currently used in edible oil production is imported. A good proportion of this is accounted for by oil palm imports. Investment in estates/plantations, especially of oil palm and sunflower, offer investment opportunities. Only one investor has ventured into this area. Contract farming is another possibility that can be exploited. Oil palm and sunflower are ideal investments because;

They have low Domestic Resource Cost Ratios 1

, 0.25 and 0.68 respectively,

They have a strong institutional support. UOSPA is actively involved in the promotion of oilseeds (especially sunflower and soybean) for edible oil processing whereas oil palm is being promoted by VODP.

Large-scale processors prefer local raw materials because of the prohibitive freight costs of similar imported raw materials. All the large-scale operators are now purchasing over 400 MT of oilseeds per week. They are also eager to promote the production of sunflower and oil palm. Essential oils

Considerable potential exists for processing of essential oils especially for the soap and detergent industries for the East African region. The Uganda soap and detergent industry consumed about 24,000 MT of citronella oil in 1998. The major suppliers being the United Kingdom and United Arab Emirates. Technology for Crushing Soybeans Current indications are that most technologies available and accessible to local processors of soybeans are expensive and bulky. Local processors are seeking for appropriate affordable technologies for processing soybeans to extract edible oil. Local Market

The local market for oil in Uganda is comprised of households, baking and confectionery industry, and the foodservice industry. With the return of economic stability, Uganda s commercial network has reestablished itself. Most urban areas now have a range of cooking oils in shops and markets, from 3 - 5 litre branded containers, sealed 1-liter bottles, and 150 ml measures drawn from bulk containers.

National demand for vegetable oil is growing at 2.4% p.a. in real income. Demand for vegetable oil is expected to reach 80,000 MT in 2005. This is an indicator of potential investment in the sub sector. The East African Market This is a market of about 85 million people covered under the East African Community (EAC). The Treaty that established the EAC is in force awaiting ratification. But, there is no consensus yet on trade. There

is a High Level Task Force (HLTF) on implementation of Article 175, which covers trade. The HLTF envisages a protocol on a Customs Union.

There is a list of goods still being worked on to be subjected to a surcharge without reciprocity when imported from Kenya to Uganda or Tanzania.

A list of manufactures that will attract a zero tariff rate for the tripartite trade is also being worked out. There has been an agreement in principle on establishing a Common External Tariff (CET) but its rate is not yet agreed upon. However at present, Uganda has the lowest customs tariff among the three countries.

Rules of origin are not yet worked out, but it is proposed to use COMESA rules of origin.

Unlike the defunct EAC, the current arrangement is market oriented and private sector driven.

It has been agreed that the region has a comparative advantage in the agricultural sector and a study on the Strategy on Agricultural Development for the region is on going. When ratified, the EAC and its focus on agricultural development, presents enormous chances for Uganda, because of the three countries, Uganda offers better avenues for agricultural development and agricultural related trade.

The COMESA Market

The Common Market for Eastern and Southern Africa (COMESA), is a regional economic co-operation group of 20 African countries with an estimated population of 367 million people.

The overall objective of COMESA is to promote regional integration through development of trade, natural and human resources. COMESA is one of the more successful regional economic groups in Africa. It has financial specialized institutions to support its activities

Key players in the Industry

Major edible vegetable oil producers Kakira Sugar Works (1985) Ltd - Oil & Soap Division Kengrow Industries Ltd Mbale Soap Works Mukwano Industries (U) Ltd New Tororo Edible Oil Products Nile Agro Industries Ltd Uganda Trade & Industrial Enterprises